(Original title: Full interpretation of the central bank’s new mortgage interest rate policy: Will interest rates rise? Will it affect housing prices?)

China News Service Client, Beijing, August 26. On the 25th, the central bank issued an announcement to adjust the interest rates for new commercial personal housing loans, which will be effective from October 8. "The technical terminology is too strong and I can't understand it!" Many netizens said after reading the announcement, "Can a class representative come out and explain what it means?"

To this end, the reporter consulted and sorted out the opinions of several experts, scholars and industry researchers, and answered a series of questions that netizens paid high attention to.

Data map: People's Bank of China. Photo by Yang Mingjing from China News Service

Why is the mortgage interest rate policy adjusted?

In order to solve the problem of "expensive financing", the central bank recently introduced a new loan prime rate (LPR) to promote lower actual loan interest rates.

The quotation method of the new LPR is changed to be based on the open market operating interest rate (mainly the one-year medium-term lending facility interest rate) plus points; the quotation frequency is changed to once a month and announced on the 20th of each month. In addition, on the basis of the original one-year and one-term varieties, term varieties of more than five years have been added to provide a reference for the interest rate pricing of long-term loans such as housing mortgage loans issued by banks.

That is, after the central bank reforms and improves the LPR formation mechanism, the pricing benchmark for personal housing loans will also need to be converted from the previous loan benchmark interest rate to LPR.

How will mortgage interest rates be priced in the future?

Previously, mortgage interest rates were priced by floating up and down the base interest rate.

From October 24, 2015 to the present, the benchmark loan interest rate for home loans is: 4.75% for one to five years (inclusive), and 4.90% for more than five years. Since most mortgages have a term of more than five years, 4.90% has become a familiar benchmark interest rate for home loans.

In the future, starting from October 8, 2019, the interest rate of newly issued commercial personal housing loans will be based on the LPR of the corresponding period in the latest month as the pricing basis plus points.

Among them, LPR is calculated from the loan market quoted interest rate quotes. The specific point value for each loan is determined by the lending bank in accordance with national and local housing credit policy requirements, comprehensive loan risk status, and negotiated with the borrower when issuing the loan. Once the bonus point value is determined, it remains fixed throughout the contract period.

For example, the LPR for a term of more than 5 years in the last month (August 20) was 4.85%. If the mortgage interest rate given by the bank is 5.44%, that means an increase of 59 basis points, which is 12% higher than the LPR benchmark.

Data map: People consult at a real estate booth at a housing exhibition. Photo by Cheng Chunyu, China News Service

Will there be no more discounts on mortgage interest rates in the future?

Starting from July 20, 2013, the central bank has canceled the 0.7 times lower limit on loan interest rates for financial institutions, but the floating range of personal housing loan interest rates will not be adjusted for the time being.

That is, why we used to hear "mortgage interest rates can be discounted by 30%", but with changes in property market control policies and credit policies, in recent years, the interest rates for first home loans have generally been no less than 10% off the benchmark interest rate.

According to the new pricing method, there will no longer be discounts on mortgage interest rates.

According to the new policy, the interest rate for the first set of commercial personal housing loans shall not be lower than the market quoted interest rate for loans of the corresponding period, and the interest rate for the second set of commercial personal housing loans shall not be lower than the market quoted interest rate for the corresponding period of loans plus 60 basis points.

Did the adjusted minimum interest rate increase or decrease?

According to the above rules, calculated based on the LPR of the latest month (August 20), for housing loans newly issued after October 8, the interest rate for the first home will not be less than 4.85%, and the interest rate for the second home will not be less than 5.45%.

Li Wanfu, an analyst at Rong360 Big Data Research Institute, said that previously, according to explicit or implicit regulations, the interest rate for first-home loans was generally no less than 10% of the benchmark interest rate, and the second-home loan interest rate was generally no less than 1.1 times the benchmark interest rate. The calculated values were 4.41% and 5.39% respectively.

"A simple comparison of these two sets of values shows that the minimum interest rate for first-home loans will rise from 4.41% to 4.85%, and the minimum interest rate for second-home loans will rise from 5.39% to 5.45%."

Data chart. Photo by Zhang Yun

Will real mortgage rates fall or rise?

On this issue, the central bank clearly stated that "the interest rates for newly issued personal housing loans are basically the same as the current actual lowest interest rates for personal housing loans in my country." "Compared with before the reform, when households apply for personal housing loans, their interest payments are basically unaffected."

Currently, the actual interest rates implemented by most banks are 10%-20% higher than the benchmark for first-home loans, and 20%-30% higher for second-home loans.

Mortgage market data from 35 cities collected and monitored by Rong360 Big Data Research Institute shows that in July 2019, the national average interest rate for first-home loans was 5.44%, and the average interest rate for second-home loans was 5.76%. highThe current benchmark interest rate for mortgage loans is 4.9%, which is also higher than the upcoming lower limit of interest rates.

Zhang Dawei, chief analyst of Centaline Real Estate, also said that under the new mechanism, both existing and increased mortgage interest rates have basically remained unchanged. At present, mortgage interest rates and lending cycles in most cities are basically stable, with slight fluctuations, but the mainstream is stable.

"The new personal housing loan interest rates remain stable, neither falling nor significantly increasing the interest burden." E Yongjian, chief financial analyst at the Bank of Communications Financial Research Center, said that because the interest rates for new personal housing loans remain basically unchanged under the new mechanism; the central bank's local branches will set a lower limit for the increase based on local conditions.

Judging from the future trend of the mortgage interest rate market, Li Wanfu said, "It is expected that the execution interest rate will be difficult to see a significant and general decline in the short term."

Yan Yuejin, research director of the E-House Research Institute Think Tank Center, believes that judging from the situation in the second half of the year, considering that the housing market policy is still tight, in fact, the specific mortgage interest rate will only increase, not decrease. Monitoring data from Rong360 Big Data Research Institute shows that from the data point of view, the national mortgage interest rate level has entered a rebound stage in the second half of the year.

Data map: Exterior view of a community on Xiaotun Road, Fengtai District, Beijing. Photo by Qiu Yu, China News Service

Who will see their interest rates increase when buying a house?

Potential homebuyers who would have enjoyed a discount on the first-home commercial loan interest rate under the current benchmark interest rate.

According to data from the Rong360 Big Data Research Institute, there are very few cities that offer a 10% discount or even a 95% discount on first-time home loans. In July, only Shanghai’s first-home loan interest rate was 4.84%, lower than 4.85%. The average first-home interest rate in the 35 cities is 5.44%, significantly higher than 4.85%.

That is to say, the interest rates for some potential home buyers in areas with discounted first-home loan interest rates, such as Shanghai, will rise; while in areas where interest rates have risen significantly, the interest rates are likely to remain unchanged, such as Suzhou. Suzhou's first home loan interest rate was 6.03% in July, making it the city with the highest home loan interest rate in the country.

"From the perspective of short-term real interest rate levels, the new policy will only have a slight impact on a very small number of the best customers, and will have little impact on the vast majority of home buyers." Li Wanfu said that if the LPR after October 8 maintains roughly the current level, then theoretically speaking, the home purchase costs for the best new home loan borrowers will increase.

Will the interest rate for provident fund loans to buy a house be adjusted?

According to the announcement of the central bank, the interest rate of commercial housing purchase loans shall not be lower than the market quoted interest rate of loans of the corresponding period plus 60 basis points. The provident fund personal housing loan interest rate policy will not be adjusted for the time being.

According to analysts, this ensures the urgent demand for first-time home buyers and reflects the policy orientation of implementing the positioning of "housing for living, not speculation" and the long-term management mechanism of the real estate market.

The current provident fund loan interest rate was adjusted and implemented on October 24, 2015. The interest rate for provident fund loans for more than five years is 3.25%, and the interest rate for provident fund loans for five years and less is 2.75%, which is the same across the country.

Data map: Workers operate excavators at a commercial housing construction site. Photo by Wei Liang

Will the mortgage interest rate be adjusted during loan repayment?

The central bank clarified that the adjustment of personal housing loan interest rates mainly targets the interest rates of newly issued personal housing loans, and the interest rates of existing personal housing loans will still be implemented according to the original contracts.

That is, for those who have already taken out a loan to buy a house, their monthly loan repayments will still be based on the previously determined method without any changes.

I just signed the contract but haven’t disbursed the loan yet. Will it be affected?

Before October 8, 2019, commercial personal housing loans that have been issued and commercial personal housing loans that have been contracted but not issued will still be implemented in accordance with the original contract.

That is to say, if a mortgage contract is signed before October 8, 2019, even though the loan will be disbursed after October 8, the mortgage will be repaid at the interest rate determined by the pre-reform benchmark interest rate pricing method.

The central bank stated that October 8, 2019 is the pricing benchmark conversion day. Prior to this, the lending bank needs to modify the loan contract, transform and upgrade the system, organize employee training, and at the same time, adopt various methods to promote and explain to customers to ensure a smooth and orderly conversion process.

Data map: Salesperson recommends commercial housing types to the public. Photo by Wei Liang

Can I discuss changing the mortgage interest rate with the bank?

Zhang Dawei said that in the past, when borrowers applied for mortgages, the interest rate was adjustable once a year.

Currently, the maximum statutory period for a mortgage loan is 30 years. There are some special circumstances. For example, Beijing currently stipulates that the maximum period is 25 years. Most of the loan contracts signed by home buyers have floating interest rates. If the central bank's benchmark interest rate remains unchanged, the mortgage interest rate will not change and the monthly repayment amount will not change.

However, since October 24, 2015, the benchmark loan interest rate has not changed, and many people’s mortgage interest rates and repayment amounts have not changed every year.

According to the new policy, when borrowers apply for commercial personal housing loans in the future, they can negotiate with banking financial institutions to agree on an interest rate re-pricing cycle. The minimum re-pricing cycle is one year and the maximum is the contract period. Each time the interest rate is repriced, the pricing basis is adjusted to the most recent monthLPR for the corresponding period.

In other words, because the LPR is updated every month, if the LPR after one year is lower than the previous year, as long as you have made an agreement before, you can repay the loan at a lower interest rate; conversely, if the interest rate rises, you will also have to bear the pressure of increased interest.

"The implication is that the interest rate calculation for future mortgages can be fine-tuned based on the needs of home buyers," Yan Yuejin believes. However, the pricing cycle needs to be agreed in advance, and the benchmark interest rate for pricing needs to be clarified. This provision will help form more diverse loan interest rate calculation methods, and will become an area where bank mortgage staff will need to actively coordinate with home buyers.

Will everyone’s commercial mortgage interest rate be different?

In accordance with the principle of "city-specific policies" and on the basis of the country's unified credit policy (the interest rate for the first home shall not be lower than the LPR of the corresponding period; the interest rate for the second home shall not be lower than the LPR plus 60 basis points of the corresponding period), in the future, each province can determine the lower limit of the interest rate for the first and second commercial personal housing loans within its jurisdiction based on changes in the local real estate market situation.

At the same time, according to the lower limit of points added at each provincial level, banks can clarify the interest rate pricing rules for commercial personal housing loans based on operating conditions, customer risk status, credit conditions and other factors, and reasonably determine the specific point added value for each loan.

In other words, if the customer's qualifications, including personal credit, financial income, debt ratio, mortgage quality, etc., are not that good, the loan interest rate will be higher than that of ordinary people. In order to obtain lower loan interest rates, borrowers must pay attention to the accumulation of personal credit.

In Yan Yuejin’s view, the calculation of future mortgage loans may vary from person to person, amount to amount, and market to market.

Source: Official website of the National Bureau of Statistics.

In which places are mortgage interest rates likely to have higher LPR points?

Zhou Jingtong, a researcher in charge of the Bank of China, also believes that in the future, mortgage interest rates will more prominently reflect regional characteristics, monetary policies and credit strategies of various banks, and the differences in mortgage interest rates will be greater in different regions, different customers and different periods.

Guo Yuwei, a macro analyst at Industrial Research, said that the central bank will guide the self-regulatory mechanisms of provincial market interest rate pricing to promptly determine the lower limit of the local LPR increase. This shows that the lower limit of the LPR will vary from city to city. The LPR increase may be higher in areas where housing prices are rising rapidly. The policy orientation of one city, one policy, and housing for housing, not for speculation, has not changed.

"In actual operation, some cities where house prices have risen too fast will be able to increase the base point appropriately under the central bank's standards in the future." Yan Yuejin also said that such increases will eventually affect the loan interest rates of specific commercial banks' mortgage departments.

Will second home loan interest rates increase significantly?

According to Li Wanfu's calculations, after the implementation of the new policy, the minimum interest rate for second home loans will increase from 5.39%.It rose to 5.45%, an increase of 60 basis points compared to LPR.

"The increase of 60 basis points for second-home properties may not seem large, but combined with the principle of city-specific policies, it is expected that the increase may be much greater than 60 basis points during implementation." Fu Lichun, research director of Northeast Securities, said that based on the suspension of second-hand home loans in some cities, the cost and availability of home loans will face some challenges in the future.

Zhang Bo, chief analyst of 58 Anjuke Real Estate Research Institute, said, "The clear requirements for second-home commercial loans reflect the clear attitude of ensuring the urgent demand for first-home purchases and maintaining the existing regulatory controls."

"The interest rates on second-home mortgages may show an upward trend in the future," said Yuan Chengjian, vice president of Zhuge Housing, which will have a certain inhibitory effect on sales in the real estate market.

What impact will it have on house price trends?

E Yongjian said that the central bank's reforms will help reduce corporate loan interest rates while avoiding overheating of the real estate market, which fully reflects the intention not to use stimulating real estate as a short-term stimulus.

"The policy is to avoid excessive housing loans, guide funds into the real economy, and is a neutral policy for the real estate market." In Zhang Dawei's view, the policy is introduced to stabilize real estate expectations, avoid stimulating real estate in the context of LPR cuts, and avoid detours of funds into real estate.

Zhang Bo believes that the central bank once again strictly prohibits the provision of "re-mortgage" and "additional mortgage" services for personal housing loans, which is also an important manifestation of the implementation of "houses for living, not speculation". It can not only effectively prevent loopholes in the actual implementation of regulation, but also effectively combat the demand for real estate speculation, and has direct practical significance for reducing market risks.

In July, the property market continued to "reduced fever". House price data from the National Bureau of Statistics shows that the number of cities with rising new housing prices further decreased in July, while second-hand housing prices fell in as many as 20 cities for two consecutive months.

Zhang Dawei said that August is the customary off-season for the market, and it is expected that cities with downward housing prices will continue to increase significantly. Zhang Bo believes that the concentration trend of transaction volume is expected to be more obvious in the third quarter, but the hot sales in some cities will not drive the decline in overall sales. Driven by the cooling, mainly in the third and fourth tiers, the overall transaction volume will show a decreasing trend.